Can South Africa become the next Forex trading destination?
The Forex market in South Africa is rapidly growing. The country has made some big steps towards the modernization of payment systems and fintech and is leading the whole African continent with its approach to the modernized financial industry. There are more and more people, especially youngsters want to know how to start forex trading in South Africa and even trade for a living. Thanks to the fact that South Africa is becoming such a financial powerhouse on the African continent, it has the potential to become the next financial destination for international traders.
It is not surprising to see South Africa as one of the major centers of Forex trading. The country has a leading economic development statistic on the African continent and is already considered as an economic hub. At the same time, there are a lot of people who are interested in Forex trading and generally trading with different instruments. cryptocurrencies are one of the best examples of it. According to the latest surveys, South Africa is the number one country with the percentage of internet users that hold cryptocurrencies. However, these are not the only reasons why South Africa can be the next Forex trading destination. There are some big reasons for it.
If you are keeping an eye on the Forex industry you would be well aware of the regulations ESMA has imposed to the Forex brokers in the whole of Europe. If you do not know much about and wonder what ESMA has to do with the Forex trading in South Africa let me explain. The financial regulator of the whole European Forex trading market brought some very strict regulations to the table. For example, ESMA completely banned binary options trading and restricted CFDs. However, the hardest regulation that Forex brokers faced was the new leverage cap. To protect investors, ESMA set leverage caps on every trading instruments. While before the new rule brokers could offer traders high leverages for example 1:300 and more, now they are not allowed to exceed the cap that was set by the regulator.
Instead, the maximum leverage they can offer to the trader is as follows:
- 1:30 for the major currency pairs
- 1:20 for non-major currency pairs, gold and major indices
- 1:10 for the other commodities and indices.
- 1:5 for individual equities
- 1:2 for cryptocurrencies
Needless to say that neither the brokers nor the investors are happy about this. Leverage is a way for brokers and traders to gain more profit. Since it was taken away from EU brokerages, many traders turned to offshore or unregulated brokers. As for the Forex brokers in Europe, they started to search for new markets, where they can have a wide audience of customers and set themselves free from ESMA. Here’s where South Africa is appearing in this scenario. But why South Africa? You might ask, that’s a logical question which has a logical answer as well. There are two main reasons why the South African Forex market is the best place to go for Forex brokers.
Why South Africa?
The first reason is very practical, South Africa is almost in the same timezone as Europe, the difference is two hours only. It is super convenient for the brokers as they can operate almost in the same way as they do on the European market. Therefore it will be easier to adapt to the Forex trading market in South Africa
While in the European countries people speak various languages, the business language and the trading language as well is obviously English. If you look at the countries that can provide English-speaking customers to the brokers you will be left with three most convenient options except South Africa – The United States, Australia, and New Zealand.
Due to the regulations and the market, the United States is out of reach for almost every broker.
Australia is a great destination if it was 10 years ago. Now the market is already digested. Plus, the local regulator makes it extremely hard for new companies to truly adopt the market. The restrictions are mostly large fees on licenses.
New Zealand, on the other hand, is not a good option since the market is very small and therefore not lucrative for the brokers.
There are some more options, but as New Zealand, they are small and are offshore. As you can see by yourself South Africa is the best place to go for the brokers. Moreover, with getting their roots in South African Forex trading market the brokers can expand to other African countries as well.
South African traders are ready to welcome international brokers
As I mentioned, more and more people want to start Forex trading in South Africa for various reasons. Forex trading seems a very good way for them to replace their jobs that do not provide the salary they wish they had. And let me tell you this is not delusional, as South Africans have some of the best traders. As an example, you can read the stories of successful Forex traders in South Africa that will assure you that the age, social background, and money you have for starting out is not important.
Some South African brokerages are already heavily embedded in the local economy and are providing services. However, South Africans prefer to trade with International brokers for the right reasons. International brokers have long experience and are well-established. They can guarantee a safe trading environment and provide with a wide range of trading assets. The service they are providing is better in quality, as a result, some international brokerages are considered to be the best Forex brokers in South Africa.
Feels just like at home
Just in the last year, South Africa started changing its financial sector regulation model. Till 2018 the country had a super-regulator approach with one regulator overseeing the whole financial sector. As you can guess it was not very efficient, especially since the financial industry went through a lot of changes and is currently a very hot market. The South African government replaced the regulator FSB with FSCA – Financial Sector Conduct Authority who is responsible for regulating Forex trading in South Africa. With this major change and other important amendments, the country is adopting the “Twin Peaks” Financial model. With this model there will be two main regulations: Market conduct regulations that oversee investment funds, by FSCA and regulation of financial institutes Prudential Regulations Authority that will be in the hands of the South African Reserve Bank.
These changes are important for the traders as they will have a safer environment for Forex trading in South Africa, which means that more people will get into it. Moreover, the “Twin Peaks” model is the one adopted by the United Kingdom. Therefore there will not be major differences and South Africa will feel like a home for the brokers, but without ESMA.
What should you expect
I think the reasons are convincing enough. South Africa can truly become the next Forex trading destination. The brokers are searching for new markets since the ESMA regulations make it harder to run the company profitably in Europe. The options that brokerages might have are very limited and not very lucrative. On the other hand, South Africa provides the best Forex trading market. The FX trading is emerging, more and more people see advantages of it, the financial education level which is so important in Forex trading is raising, especially in young people. The regulatory system of the country is getting closer to one that is adopted by the UK. If you think that it is a matter of time then you are mistaken, many of the best brokers already got an FSCA license and are already operating on South African Forex trading market. Some of the largest brokerages are planning or are in the process of entering the SA market as well. Therefore you can expect many changes in South African Forex industry and a great choice of some of the finest Forex brokerages.